Some people are born entrepreneurs, some choose entrepreneurial career paths and others have entrepreneurship thrust upon them – usually by the fickle finger of financial fate, also known as losing your job in midlife. But whatever the reason, if you’re considering starting a business now that you’re past 40 – the traditional line between youth and middle age – here are some things to think about and a few pointers to take away.
Advice for 40+ Entrepreneurs
1. Trade on Your Age, But Be Clear-eyed About Your Abilities
Your age may be a plus if you have experience in the field your business will enter. Your age and experience will help give you credibility with customers, suppliers and staff – and with lenders when you need to raise money, except perhaps in a Silicon Valley–style business where the stereotype of successful innovators is under age 30, or even under 25.
Perhaps you’ve worked for a company or two recognized as a leader in the field. So much the better. People (perhaps including you) will assume that its success rubbed off on you. Confidence is a valuable commodity, especially when you’re in the early stages of a start-up.
All the same, when your experience has been limited to two or three areas in a large corporation you may be surprised by all that you don’t know. Product development may turn out to be much harder than it looked when you were over in the sales department, for instance. Necessary paperwork for everything from office leasing to hiring staff, installing a phone system, inventory control and insurance options may literally keep you up at night. And that’s before you even get to policy issues, taxes or government paperwork.
TAKEAWAY: Don’t assume that you know all you need or can do all you need. Budget for hiring necessary expertise and extra hands. Draw on your own strengths when and where they matter most. This is a good time to seek an honest assessment of your potential as an entrepreneur from trusted friends and colleagues. It's also a good time to get advice on simplified bookkeeping and setting up record-keeping systems from an experienced small-business manager or professional bookkeeper. Decide on the software you're going to use and take an online tutorial now. If you can't master it, prepare to hire a part-time person with those skills because it won't get easier as you get busier.
2. Understand What Having Your Own Business Entails
“For years, I’ve been reading about executives who leave their jobs and go into business for themselves, where they find contentment and learn the meaning of life. Now that I’ve done it, I’m here to tell you it isn’t quite that easy,” wrote business owner Ken Veit in the Harvard Business Review. His confession continued: “I was on the corporate fast track for almost 30 years, and now I own a retail store in a mall. The first experience had money, perks and status. The second has 15-hour days, unacceptable risk, no salary, no security, and, just maybe, no future.”
There are plenty of good-news, bad-news jokes connected with starting a business. One you may relate to: The person on the corporate fast track works 60-hour weeks, faces constant stress, rarely spends quality time with her or his spouse and kids and is afraid to take any real vacation. The entrepreneur, on the other hand, is stressed beyond belief, never sees the spouse and kids, doesn’t know what a vacation looks like and also works at least 65 hours a week. The good news is: The entrepreneur gets to decide which 65 hours.
For some people, that is enough. They are not discouraged by the widely cited high failure rate of new businesses, often given as four out of five – or as many as eight out of ten, as Forbes calculates it, crediting Bloomberg. (You’re quite right – four out of five and eight out of ten are the same rates. Congratulations – that degree of numeracy on your part is encouraging.)
Time is a factor in these figures, of course. So is the definition of failure: It may include selling or closing the business for happier reasons, such as retirement. Look at new-business survival rates over time, and you’ll see a trend line that heads down. In one group of studies, more than 40% still have their doors open in the fifth year, but in the sixth year, it drops below 40%.
3. Decide Why You Want Your Own Business, Despite the Risks
Deluxe Corp. (DLX), whose clients are small businesses and financial institutions, surveyed more than 1,000 small business owners in 2013 and concluded that “it’s in their DNA,” because about three quarters had a family member who owned a small business. Other findings: 89% considered themselves leaders. Some felt destined; 37% of the men and 18% of the women always knew they would own their own businesses someday. And more than half wanted to work for themselves rather than some boss.
Many of the women started businesses because they needed flexible hours – others, like many of the men, because they needed a job and couldn't find a suitable one. Yes, a lot will move back into the regular workforce when their circumstances change or as the economy improves. If you think you may be in this category, give a little thought to whether the business you start is something you could sell to someone else if and when you find that corporate life is calling.
TAKEAWAY: Look the possibility of failure in the face before you start. There is a substantial risk of failure for any new business; however, one advantage to your age and experience may be the number of people you know. Your visibility in the field can give you a head start unless you're changing career fields drastically. The same study by Deluxe Corp. found that entrepreneurs often were visionaries and risk-takers who enjoy choosing their own path and are passionate about their work. A possible pitfall for them is overconfidence.
4. Determine Where You'll Get Funding
Another way to ask this question is: Where are you going to place the risk? A word entrepreneurs sometimes use is bootstrap. Drawing on personal savings and using the cash flow of your business to finance its operations avoids having to borrow and pay back with interest, but bootstrapping has its own risks. One is that you will exhaust your savings and yourself. Another is that bootstrapping will strangle the growth of your business when money for expansion is needed.
Consider your life stage and your family's. If you put your savings and money from your retirement fund at risk – financial people sometimes use the scary term "breaching" your 401(k) – will you have time to replace them if the business goes bad? Take a look at retirement-breach research by HelloWallet.com. It's sobering. One of the scarier parts is the reminder of the period in your life when family responsibilities are most likely to require raiding retirement savings. Probably you’re in it now. Can you meet family emergencies if your money – and you – are tied up in a new business launch? What about college costs for your children?
In his 2012 campaign, Mitt Romney famously advised people to “borrow money from your parents” to start a business; what’s often left out of the quote, though, is that he addressed that advice to the young. In America, he said, “We’ve always encouraged young people: Take a shot, go for it, take a risk, get the education, borrow money if you have to from your parents, start a business.” If you’re over 40, think about your parents’ life stage. If they are close to retirement, you may not want to dip into their funds.
On the other hand, if you are one of those who feel destined to start their own business, you might well ask, If not now, when? Where is the virtue in postponing further? This especially makes sense if you're still 40 or 45; you have more time to recover from a business failure than if you strike out at 55. You also have more time to grow it into profitability and beyond – the pot of gold, perhaps. One expert writing in Forbes advocates, “Launch Fast! Fail Fast!” On the other hand, Colonel Sanders founded the Kentucky Fried Chicken at age 65. (He was already a well-known restaurant owner, though; he built the franchise on his reputation and, of course, that fried chicken recipe.)
Banks are frequently reluctant to lend money to brand-new businesses, but if you have a good business plan, can articulate your vision well and have a charismatic personality, you might do well to seek money from the venture capital world. (See Investopedia’s tutorial, How To Write A Business Plan.) That places a portion of risk outside your family, in the hands of professionals who are versed in the dangers and rewards of start-ups. (Investopedia's article 4 Steps To Creating A Stellar Business Plan and the embedded links in that story provide other useful tips.)
TAKEAWAY: Think through the issue of financial risk and who should shoulder it. Preparing a business plan and subjecting yourself to some smart questioning will help you think through your start-up even if you decide in the end to use your own resources.
5. Become Well Acquainted With the SBA
The U.S. Small Business Administration is dedicated to your success and offers vast resources of help and information. Explore the SBA website; check out SBA loans, another good source of funding. Avail yourself of the expert mentors at SCORE, its partner organization; listen to the lectures – on taxes, for instance – at your nearest state branch or get online training.
The Bottom Line
Listen to all the cautions with respect and attention. Investigate the issues they raise. If inner compulsion, inability to find a job or family destiny still drive you to go ahead, then do it with gusto. It may be the best thing you ever did.